The Brexit doomsday scenarios yet to play out

Brexit and London property? The connection — or the precise nature of the impact from the UK vote to leave the EU — is yet to show up clearly on the investors’ radar.

Compared with the many doomsday scenarios mapped out just after the June 23 vote, things haven’t exactly panned out that way. The weakened sterling after the vote has actually supported overseas demand in the new-build market, according to a new report from Savills, the consultancy.

Moreover, a further cut in interest rates — by 0.25 per cent — proved to be quite a boost for domestic buyers, “particularly beyond central London”, the report adds.

Clearly then, “at this stage, the market is yet to show its hand in response to the Brexit vote,” Savills notes. “There is certainly not the sense that the impact of the vote to leave the EU is likely to be as severe as in the early 1990s when the cost of debt spiralled, or the 2008 financial crisis when the Sword of Damocles hung over the banking industry.”

Middle East investors, existing and prospective, will be taking note. Some have even decided to play it safe. “We have seen some Middle East investors looking to re-allocate a part of their portfolio to other geographical areas, due to the uncertainty in the mid-term that Brexit has triggered,” said David Godchaux, CEO of Core Savills UAE. But “There remains a strong preference for London properties in the long-term as the city is still considered by most as a safe haven, even on the back of Brexit.”

And sellers in London could be willing to meet them halfway. “Early signs from the autumn market are that committed sellers have adjusted their prices by between 5 and 10 per cent,” said Lucian Cook, Savills’ UK Head of Residential Research. “We now need further small adjustments to bring buyers back to the table in greater numbers.

“The current situation is reminiscent of the 2002 to 2004 post bull run period when a less significant financial shock combined with an uncertain geopolitical backdrop. Prices then fell a total of 10 per cent.”

Even now, with the sterling going all soft post the referendum, an overseas buyer getting in now can expect a 19 per cent saving acquiring a £10 million (Dh47.68 million) property if he pays off in dollars.

if the scene shifts to locations and properties on outer prime London. price drops of 5 per cent are projected for this year. And in the five years to 2021, expect lower price gains of 14.6 per cent “reflecting mortgage lending constraints and greater caution around financial sector job security”.

But even if the UK has to go through a “hard” exit from the EU, it’s property market will still be appetising for overseas investors. “We know the prime London markets have generally rebounded strongly after a period of adjustment,” said Cook. “The market will inevitably remain susceptible to fluctuations in buyer sentiment, but there is nothing to suggest the impact of the vote to leave will echo that of the global financial crisis.”

“While the tax backdrop will continue to be factored into buying decisions, no other European city has the infrastructure to match London as world city and global financial centre and this should underpin a return to trend levels of growth.”

Source: Manoj Nair, Associate Editor,


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